Civil unrest, product recall eat into Tiger Brands earnings, resulting in more than 5% decline in HEPS

SOUTH AFRICA – South African food manufacturing giant, Tiger Brands expects its full year earnings for the period ended September 2021, to take a dip impacted by once-off costs related to the civil unrest that took place in July 2021 as well as the canned vegetable recall.

Tiger Brands had announced previously that a number of its sites in KZN had been affected by acts of looting and vandalism, resulting in damage to the Rice and Snacks & Treats operations.

This incident was shortly followed by the recall of 20 million KOO and Hugo’s canned vegetable products due to potential defects in the cans.

The manufacturer of All Gold, Black Cat, Albany and Jungle Oats brands Tiger anticipates its headline earnings per share from continuing operations to be 5% to 15% lower than the 1 196 cents reported in 2020. 

While its earnings per share from continuing operations are likely to increase between 15% and 25% for the year.

The relatively higher rates of increase in EPS, compared to the year-on-year percentage changes in HEPS, are primarily due to the significant impairment charges of R600 million (US$40m) recorded in FY2020, all of which related to continuing operations.

According to the company, the write-off of assets plus stock losses related to the civil unrest amounted to approximately R100 million (US$6.68m) (pre-tax), whilst the adverse financial impact of the recall totalled R647 million (US$43m) (pretax).

The after-tax impact of the stock losses, together with the impact of the recall, is estimated to be in the region of 318 cents per share.

“These once-off costs more than offset the group’s improved underlying performance, despite a particularly challenging second half for the Milling and Baking operations as well as Exports,” indicated the company.

For accounting purposes, the write-off of stock related to the civil unrest as well as the recall will be accounted for through cost of sales.

While, the refunds related to the recall will be accounted for as a reduction in revenue, whilst other recall related costs will be accounted for through the relevant expense functions on the income statement.

Tiger Brands has further highlighted that its headline earnings per share (HEPS) from total operations for the year are likely to increase between 15% and 25% compared to 2020.

And it anticipates that its earnings per share from total operations will grow by 80% to 90%, more than the 612 cents growth it saw in 2020.

“The increase in HEPS from total operations was primarily due to the losses recorded in Value Added Meat Products (Vamp) in FY2020 compared to a small profit in the year ended 30 September 2021”.

In 2020, Tiger Brands sold its Vamp business, made up of the Enterprise brand, to Silver Blade Abattoir, a subsidiary of Country Bird Holdings.

Tiger Brands, recently announced that its ordinary shares will be listed and traded on alternate exchange, A2X Markets.